Billions of dollars flow through credit cards every year and nearly every bank in the country offers a credit or debit card for their account holders. The competition for the privilege of handling your transactions is pretty stiff, so be sure to leverage your purchasing power to snag some sweet benefits the next time you do a little shopping.
What kind of benefits you ask? Well, there are many, including points towards free hotel stays, airline miles for free flights, and rewards for Disney merchandise, to name a few. But there are a few potential problems with these kinds of benefits. The first issue results from the fact that the value of the reward system can be changed almost arbitrarily. Airline miles are a good example of this – the airline can adjust the mileage requirement for free flights, leaving you short when you had planned on a free flight for your next vacation. Just ask anyone who had frequent flyer miles before the 2013 US Airways – American Airlines merger and subsequently saw the number of miles required for a flight nearly double. The other issue is simply one of flexibility – if all your rewards are tied up as points towards free hotel rooms, then the only way to use your rewards is to stay at a hotel. That doesn’t sound so bad, a few days away at a hotel sounds great, right? But if your plans change for some reason, like, I don’t know – a global pandemic hits, you won’t be able to reap those benefits.
There’s an easy solution for those slightly sticky credit card reward issues – cold hard cash. Nothing is more flexible than cash, which is why I keep all my credit card rebates as the cashback variety. Even though I love to travel and some cards sponsored by hotels/airlines offer boosted rebates for using their hotels/airlines I prefer to get the best rate I can on an individual basis and pay with the cash rebates I’ve earned. In fact most of the family vacations we’ve taken over the years have had the lodging paid for in part or in full by credit card rebates. Here’s how I save using credit cards.
Types of Credit Card Rebates
Credit card companies offer different approaches for earning rebates. These methods apply to cashback cards, but also generally apply to other credit card reward systems as well. Maximize the benefit each method provides to earn the most cashback.
The Rotating Rebate
Some cards offer you a base cashback percentage on all purchases with a boosted rate on certain categories or stores that change each quarter. If the base rate is less the 1%, move on to a better offer. The boosted rate should be 5% or sometimes is described as an additional 4% on top of the base rate. Either way it is 5% of the purchase back in your pocket at the end of the month. The rotating categories can be tiresome to track and some programs require opting in each quarter, but the categories or stores are usually something you will frequent. I use the Chase Freedom Visa to fill out this category in my hunt for cashback and this year it had categories like Gas Stations and Grocery Stores, and highlighted stores like Amazon.com and Walmart.
This type of cashback offer is also category based, but the categories remain fixed. For instance the Blue Cash American Express Card I use gives 3% cashback at grocery stores, 2% at gas stations, and 1% on all other purchases. This is highly convenient since food and gas are regular expenses in my monthly budget. So anytime my card with the rotating categories isn’t paying 5% on gas or groceries, I fall back to this card to still get a higher cashback rate on these common expenses.
Constant Cashback Rate
This is the card that will be your work horse. Since the other cards offer 1% on everyday purchases that don’t fall in their highlighted categories or stores, get the highest rate you can on this card. Generally the best rate is 1.5%, which may not seem very different from 1%, but think about your spending for the year and you’ll see how quickly that extra half point adds up. I have a Quicksilver Mastercard from Capital One for this category and it is the card that actually gives me the most cashback each year since I rely on it for all the other expenses. Anything that accepts credit cards but doesn’t go on one of the other two cards goes here. I use it for everything from the electric bill to the hardware store to the pharmacy and watch the rebates pile up.
The trick with using a credit card for all these bills and purchases is to pay the credit card bill in full each month. If you carry a balance you’ll quickly eat away at any rewards you’ve earned. So, just make sure all your charges are accounted for in your budget so you can stay on top of your expenses. (Check out my Do I really need a budget? for help getting started if you don’t have one yet.)
There’s one more type of card that may have a place in your cashback arsenal. Some retailers offer credit cards with special benefits for getting a store branded card and these can prove lucrative as well. It may be discounts on gas or 5% on purchases, but keep in mind that the special benefits can only be used in their store. So if you frequent a particular retailer, getting their card might end up saving you quite a bit, but you’ll want to get the other three types of cashback cards to maximize your opportunities for cashback.
Diversify Your Cards
You might have noticed I have a Visa, Mastercard, and American Express and they’re all with different institutions. You don’t have to try three different institutions to get the three main types of cashback cards, but each institution will also have some additional bonus offers from time to time that can juice up your cashback even more. For instance, my Chase Visa had 5% back on Lyft rides for the whole year and a long list of special offers for streaming services, restaurants, and clothing stores. My AmEx card has a different list of special offers. These offers are only good for a limited time, but are often for 5-20% cashback on a one time purchase and can really help stretch your dollars.
What will you do with your cashback?
So I mentioned that I use my cashback to help pay for vacations. I take the rebates and put them in a savings account that I use when it’s time to pay for a trip. What will you do with your extra cash? Let me know in the comments below!
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